In last Friday's post I mentioned that the market had fallen to a
tradable oversold, but that I was not going to play this week, as
the recent action gave me considerable pause. Today, the SP 500
fell to a new cyclical closing low near 1260, taking out the double
bottom set earlier in the year around 1275. So, the oversold has
intensified, but now it may be wise to see if there is a breakaway
downleg in the offing. I am going to give it a few days, letting
everyone sleep on it over the long weekend.
The key elements I follow to see if there is a cyclical buy in the
offing are not in place yet. The drop in short rates is a positive,
but a rising level of corporate bond yields, particularly mediocre
credits, shows diminishing confidence in the economic
environment and is now a veto. As well, monetary liquidity
remains flattish and has yet to exhibit the "pop" that precedes
profit and market recoveries. (I do have a monetary base model
for the stock market, and this model stands a paltry 3% above
levels reached in early 2006.)
The SP 500 Market Tracker is in a clear cut bear market, with
the current reading of 1180 about 27% below its 7/07 high.
The drop reflects the recent acceleration of inflation and a decline
in the index of 12 month earnings for the "500" from 91.25 to
74.50 presently (-18.4% point to point). At 1261, the "500"
is trading 6.9% above the Tracker and has been losing its premium
steadily since mid-May, '08.
I'll pick this up tomorrow or Friday with a little conjecture work.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!